Genesco (GCO 23.85, -1.75) is a specialty retailer that sells footwear, headwear, sports apparel and accessories. It will probably come as little surprise, then, based on the dour reports heard of late from Foot Locker (FL 35.24), The Finish Line (FINL 8.24), Hibbett Sports (HIBB 11.90), and Big 5 Sports (BGFV 7.60), that Genesco disappointed with its second quarter results and outlook.
Surprise or not, investors are feeling dismayed by the company's latest update and have sent the stock 6.8% lower in pre-market trading.
Genesco reported a 1.5% decrease in net sales of $616.5 million, which was shy of analysts' average expectation. Excluding the sale of SureGrip and the impact of foreign exchange, revenue would have been flat.
Consolidated comparable sales for the period, which also include comparable e-commerce and catalog sales, were flat and impacted by inconsistent performances across its core divisions. Comparable sales were up 1% for Journeys Group, down 2% for Lids Sports Group, up 3% in the Schuh Group, and down 1% in the Johnston & Murphy Group.
The gross margin rate for the period fell 60 basis points to 49.7%; and Genesco posted an adjusted loss from continuing operations of $0.10 per diluted share, missing analysts' average expectation, compared to earnings from continuing operations of $0.34 per diluted share in the same period a year ago.
The company conceded that the second quarter was more challenging than it expected, noting that the positive momentum at Journeys was offset by the increasing headwinds at Lids and that it continued to see a "dramatic shift in consumer shopping away from stores to digital across [its] divisions which pressured profitability."
Genesco feels good about the early third quarter sales trends for Journeys and Schuh; however, it is suffering from weak trends at Lids that are well below the company's expectations and which will make it difficult to live up to a challenging comparison that began last October in association with the Cubs winning the World Series.
The weak performance at Lids, combined with a more conservative outlook for store-based sales due to weak mall traffic and the consumer spending shift to online, has prompted Genesco to lower its fiscal 2018 adjusted earnings per share outlook from a range of $3.90 to $4.05 to a range of $3.35 to $3.65.
The guidance assumes comparable sales will be between -1.0% and 1.0% for the full year.
At its current price, GCO is trading at approximately 7x estimated FY18 earnings and is down 62% year-to-date.